Couch Potato Subsidies

How digital television is rotting legislators' brains

The first duty of government is to secure our fundamental rights—which is doubtless why, last week, the Senate agreed to spend up to $3 billion retrofitting old television sets to guarantee that every man, woman, and child in these United States would be able to enjoy high quality digital broadcasts of Desperate Housewives.

The cash would go to buy converter boxes for sets that would otherwise stop receiving signals in early 2009 when night falls on the age of analog broadcast TV—returning at least $10 billion worth of analog frequencies to the government for auction or use by emergency first-responders. Broadcasters must complete the transition to the digital television (DTV) spectrum that Congress gave them back in 1996—a gift at the time valued at some $70 billion.

Sen. John Ensign (R-Nev.) had initially proposed an amendment limiting the retrofitting subsidy to a paltry $1 billion, but a spokesman later told reporters that the senator had decided to withdraw it, on the grounds that the money saved would just be spent on other projects anyway.

The obvious question here is: Why should $3 billion in federal funds go to subsidize those who don't care enough to upgrade or replace their own sets, or sign up for basic cable? More than 85 percent of TV-owning households are already getting cable or satellite. By the time the transition is complete, a growing number may be getting their weekly dose of Lost via video podcasting: Apple's iTunes service recently began offering video downloads of several popular TV shows. Is free broadcast television really so vital a good that people who don't watch it should be footing the bill for a $50 converter box for those who do? Many of those who currently have incompatible sets, after all, might well have upgraded anyway over the next two years—if they hadn't been told that waiting means the government will pick up the tab for them.

The less obvious but more important question, however, is this: In a country where the vast majority already travel to the vast wasteland over cable or satellite, not over-the-air broadcast, why isn't the broadcast spectrum being used for more valuable applications like WiFi or cell phones? Why has the government handed the spectral equivalent of beachfront property over for what is primarily an entertainment medium that only 15 percent of viewers—and shrinking—make use of anyway?

Thomas W. Hazlett, a professor of law and economics at George Mason University who previously served as chief economist of the Federal Communications Commission, calls the broadcast transmission system "a vestigial organ that is massively costly to the country not to be using for things like mobile phones and wireless Internet." Under a system of genuine property rights in spectrum, he suggests, broadcast frequencies would be sold off for those more valuable uses, leaving television relegated to the cable and satellite providers for which most consumers have already shown a measurable preference.

At the end of the DTV transition, the FCC will be able to move some 108 MHz of spectrum to those other uses, leaving 294 MHz for broadcast television. Hazlitt calculates that for about $3 billion—the same amount being allocated to retrofit old sets with digital tuners—every household in the country not currently hooked up with cable or satellite could be added. That means the difference between that cost and the value of the spectrum now devoted to the vital task of bringing us When Animals Attack for other applications is a pure deadweight loss. Freeing up 200 MHz of spectrum, Hazlett calculates, would be worth about $77 billion annually in gains to consumers. But locking that spectrum into inefficient TV broadcast use is nevertheless somehow mandated by "the public interest."

That works out fine for politicians, who get to leverage their authority over broadcast television content into opportunities for high-minded contemplation of the best way for broadcasters to serve that public interest—and for ammunition in our endless culture wars.

The networks, meanwhile, benefit from "must carry" regulations that give over-the-air broadcasters mandatory preferential treatment on cable and satellite systems. Broadcast DTV, in other words, may be little more than a white elephant whose real value to the networks is the leverage it gives them on digital cable—though how those rules will apply in a DTV world remains up for grabs.

It was way back in 1987 that the FCC—perhaps shaken by the end of Diffr'ent Strokes—formed its first committee to begin thinking about digital television. Ten years later, maybe between commercials on the premiere of Ally McBeal, it began to lay the groundwork for the transition. And on the current timetable, it will have been more than another decade before the transition is complete.

The problem, then, isn't just that it's silly and wasteful—though it is—to allocate valuable spectrum to broadcast TV rather than mobile or wireless Internet services. The real problem is that we don't know whether those will be the most valuable uses of that spectrum in ten years either, as new technologies make it possible to take advantage of the ether in new ways. A real market in spectrum would allow entrepreneurs and consumers alike to take full advantage of what's happening now in an ever-changing technological landscape, instead of playing out scripts written when What's Happening Now was still on the air.